The United States and Germany have agreed to a deal paving the way for the completion of Russia’s Nord Stream 2 natural gas pipeline as the Biden administration effectively yields to the inevitability of the project’s construction and looks to repair relations with its key European ally.
"While we remain opposed to the pipeline, we reached a judgment that sanctions would not stop the pipeline and would undermine critical alliances with Germany and other European allies," a senior State Department official told reporters Wednesday. "We are making the best of a bad hand, and in doing so, we are making sure we protect our partner, Ukraine."
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As part of the deal, the two sides will ensure Ukraine continues to receive roughly $3 billion in annual transit fees for natural gas Russia pays under an agreement with Kyiv that expires in 2024.
Germany agreed to appoint a special envoy to help Ukraine negotiate an extension to that agreement, the State Department official said.
Ukraine fears the pipeline will strengthen Russia’s influence. The State Department official said the U.S. and Germany are committing to hold Russia accountable if it elects to "use energy as a weapon and commits aggressive acts against Ukraine."
The official did not specify what would constitute punishable behavior.
"Our worst-case scenario was a completed pipeline and nothing to help Ukraine to reduce the risk this pipeline poses to it," the State Department official said.
Germany and the U.S. also agreed to invest $1 billion in a "green fund" to help Ukraine reduce its dependence on Russian gas by promoting the use of renewables, facilitating the development of hydrogen, boosting energy efficiency, and accelerating a transition from coal. Berlin is providing an initial donation to the fund of at least $175 million.
The $11 billion Nord Stream 2 pipeline, more than 95% complete, will double the volume of natural gas exported to Germany through an existing portion of the pipeline, using a route beneath the Baltic Sea while bypassing an existing path through Ukraine.
The new agreement enshrines a decision made by the State Department in May to waive sanctions on the corporate entity in charge of Nord Stream 2.
The State Department, in a mandatory report to Congress, said the company and its CEO are engaged in sanctionable activities, but the administration would waive penalties anyway, citing an interest in rehabilitating the U.S. relationship with Germany frayed under former President Donald Trump.
Berlin views the pipeline as a commercial project and has bristled at sanctions as violating its sovereignty.
By not sanctioning the main actor behind the pipeline, the Biden administration received criticism from Republicans and hawkish Democrats as being soft on Russia.
Sen. James Risch of Idaho, the top Republican on the Foreign Relations Committee, criticized the Biden administration’s new agreement with Germany.
“This proposed ‘agreement,’ to allow the completion of Nord Stream 2 between the United States and Germany is full of promises and assurances but offers little in the way of meaningful measures to address the key national security threats Nord Stream 2 poses to U.S. allies and interests,” Risch said.
The administration emphasized it has always opposed Nord Stream 2, as it could increase Europe's reliance on Moscow for energy.
The European Union already imports 45% of its natural gas from Russia.
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But the administration is in a tough spot because the project progressed during the Trump administration and was mostly finished before President Joe Biden took office.
"It’s not at all clear anyone can stop a project in another country when that country wants to build it, especially if that country is an ally," Kevin Book, managing director of research group ClearView Energy Partners, told the Washington Examiner.